Commercial vs. Residential Property: How they compare

In general, commercial property is seen as a defensive, high yielding, low capital growth investment. Whereas, residential property is generally viewed as a more speculative, high growth and low yielding investment. 

 Residential propertyCommercial property
Effective cash yield2-4% pa

Around 5-7% pa

Property typesHouses, apartments, flats and townhouses

Office, retail, industrial, healthcare, hotels and storage facilities

LeasesShort term (typically 1 year)

Long term (typically 5+ years)

Rental reviewsUpon lease renewal, determined by local market conditions

Most lease contracts have locked-in rent reviews linked to fixed rates or CPI

TenantsIndividuals

Businesses, ASX-listed companies, government bodies

Legal protectionVarious States' Residential Tenancy Act favours the tenant

Generally, the legislation is balanced between landlords and tenants

Property costsCosts are largely borne by the landlordMajority of costs are borne by the tenant

Source: APN Property Group - 'The little book of Big Property: An essential guide for commerical property investing'